Federal insurer sale hits snag

A PLAN for the Federal Government to sell its loss-making credit insurance business has hit a potential snag as proposed purchaser European-based giant Gerling reels from the impact of the worldwide reinsurance crisis.

The Export Finance and Insurance Corporation is just 12 months into a two-year contract with Gerling, which would have allowed it to exit the credit insurance part of its operations that assist exporters in managing their credit risk.

Concerns about the alliance with Gerling were understood to be at the top of the agenda when the EFIC board met in Perth last month.

Gerling’s position as the second largest credit insurer in the world, holding a market share of 25 per cent, has not stopped it faltering under reportedly huge claims against its Gerling Global Re business.

Gerling is fighting a court battle to offload the reinsurance business, possibly to Deutsche Bank or 25 per cent owner Swiss Reinsurance.

An EFIC spokesperson played down the likelihood of any threat to its insurance business as a result of the alliance with Gerling.

The spokesperson said the divestment of the EFIC credit insurance was still on track while the implementation of systems integration was working well.

The alliance began in October 2001, following a public tender, when EFIC entered into an alliance with NCM Holdings NV, the Dutch credit insurer.

Under the alliance, Nederlandsche Credietverzekering Maatschappij NV, reinsures most of EFIC’s commercial account short-term credit insurance business. In December 2001, NCM merged with the credit insurance operations of the Gerling Insurance Group.

In the past financial year, EFIC supported a record $7.2 billion of exports and made a profit of $19.4 million on the back of a $23.3 million profit on the export finance business, which offset the $3.9 million loss in credit insurance.

The key functions of the 12-year-old EFIC, a government self-funded statutory body, are to help export trade by providing insurance and financial services and products to persons involved directly or indirectly in exports.

Another role is to encourage banks and other financial institutions in Australia to finance or assist in financing exports. EFIC’s mandate is to complement the services of banks and provide and help extend those services to exporters.

Finally, it provides information and advice regarding insurance and financial arrangements.

Its board comprises both private sector businessmen and public servants. 

In previous years Perth businessman John Poynton was a board member, however, no Western Australian currently holds a position.

The board chairman who is currently on leave of absence is Peter Young, the executive vice-chairman of ABN Amro Group (Australia and New Zealand).

The acting chairman is Ian Knop, chairman and managing director of Profile Ray and Berndtson, an international executive search and management consulting firm, and a director of Aurora Energy.

Mr Knop was a former director of Wilhelmsen Lines Australia and the NSW Financial Institutions Commission.

Other board members are Australian Red Cross and former Deutsche Bank Sydney vice-president and ANZ Investment Bank director Yasmin Allen; Department of Foreign Affairs and Trade secretary Dr Ashton Calvert; insurance broker Bain Hogg former managing director and chairman Howard Davies; Queensland Sugar Limited director Sarah Isreal; and Sackville Wilks and Co managing partner Frank Levy.

Also on the board are Australian Trade Commission managing director Peter O’Byrne who was formerly asian regional director for the international consumer goods company Reckitt and Colman and Department of Industry, Tourism and Resources secretary Mark Paterson.

He was previously Australian Chamber of Commerce and Industry CEO and executive director of the Retailers Council of Australia and the Retail Traders Association of NSW.

The final board seat is occupied by Department of Foreign Affairs and Trade secretary Geoff Raby. Dr Raby has also served as head of the OECD’s Trade Policy Issues Division and head of the Economics Section at Australia’s Beijing Embassy.